Dáil Éireann Debate, Wednesday - 18 April 2012
207 Deputy Joan Collins asked the Minister for Finance if it is correct to state that the some or all of the Irish banks were deemed insolvent at or prior to the recapitalisation of those banks; and if so, is it the case that some or all of the recapitalised banks were trading while insolvent. [19111/12]
View answer208 Deputy Joan Collins asked the Minister for Finance the actions that are being or have been taken with respect to the recapitalised banks and the personnel involved that were trading while insolvent and were in breach of the statutory obligations under company law. [19112/12]
View answer209 Deputy Joan Collins asked the Minister for Finance as some or all of the recapitalised banks were clearly trading and in the process of advancing loans and mortgages while in fact insolvent, the way such advances and loans can be legal, lawful and binding on those to whom such moneys were given by financial institutions that were at the time acting in breach of the licence conditions governing them, thus rendering their trading unlawful. [19113/12]
View answerI propose to take Questions Nos. 207 to 209, inclusive, together.
I am advised by the Central Bank of Ireland (CBI) that they require all credit institutions authorised and operating in Ireland to maintain a minimum level of solvency on an on-going basis. The prevailing EU standard is the Capital Requirements Directive (CRD) which has been transposed into Irish law by Statutory Instruments 660 and 661 of 2006. In simple terms, the CRD requires banks to hold capital equivalent to 8% Total Capital as a percentage of risk weighted assets. In broad terms, this is a "higher" level of solvency than that which is provided for under the Companies Acts.
In the case of the Irish banks subject to the Central Bank's Prudential Capital Assessment Review (PCAR), additional capital above the minimum solvency requirement has been required to be raised and held. The quantum of additional capital required has been calculated with reference to higher on-going capital standards (e.g. 10.5% Core Tier 1) and to the PCAR stress test, which included items such as the capital impact of planned deleveraging, future funding and liquidity needs, future loan impairment provisions, operating income projections and other additional stresses.
The CBI was of the opinion that Irish banks needed to be capitalised well in excess of minimum internationally agreed regulatory levels to protect against any future shocks to the financial system and to restore confidence in Irish banks. The PCAR 2011 announced on 31 March 2011, required the Irish banks to raise €24 billion of additional capital, which for conservatism included equity and contingent capital buffers totalling €5.3 billion.
Following the publication of PCAR 2011, the Government committed to meeting the recapitalisation requirements of the Irish banks to ensure that the Irish banking system is returned to health. We agreed with the CBI and the External Partners that a period of time would be allowed to meet this requirement, to ensure appropriate private sector involvement and thereby reducing the cost of the recapitalisation to the taxpayer. These actions included seeking further significant contributions from subordinated debt holders, by the sale of assets to generate capital and by seeking private sector investors. This reduced the recapitalisation cost in 2011 to €16.5 billion.
It was previously intended that the outstanding €1.3 billion capital requirement for Irish Life and Permanent plc. would be partially satisfied on completion of a sale of Irish Life. Following the suspension of the sale process in November 2011 it has now been agreed with our External Partners that the recapitalisation will be completed by end-June 2012 and it has also been decided that a State acquisition of the company would be the most effective mechanism to complete the recapitalisation.
